Household price expectations are slowly rising

The data of the Infom poll commissioned by the Bank of Russia on inflation expectations of the population in October 2022 demonstrate the first reaction to the announcement of partial mobilization — the fund conducts polls in the first half of the month, and these events did not affect the results of the last wave. The October 3-13 poll shows the real impact of a change in domestic policy (always assumed by mobilization measures of this magnitude) on expectations – they are considered mainly in non-economic logic as a pro-inflationary factor.

As follows from the survey data published without comment by the Central Bank (“a week of silence” on the eve of the rate meeting), inflation expectations of the population for the year ahead rose from 12.5% ​​to 12.8%, while estimates of current inflation fell significantly. Expectations peaked in May 2022, amounting to 25.1% for observed inflation (see chart, while expected inflation increased earlier in the survey a year later, with a peak in March 2022, then declining to levels slightly increased to the norm of recent years) , after which it gradually decreased. Thus, the unexpected September increase in observed inflation is apparently just a statistical outlier.

Nevertheless, the growth of inflation expectations in a year against the backdrop of estimates of current inflation that have almost returned to the indicators of 2021 is most logically associated with mobilization: explanatory models popular with economists, linking current economic models with the risks of an increase in the inflationary background, are too complex, and in terms of FOM surveys about respondents’ opinions about their own well-being, expenses, moods and expectations, only the “ideological” components changed significantly — in other words, the respondents more often expect the situation in the country as a whole to worsen in the future (as opposed to personal future well-being) and move from groups of optimists to pessimists.

For the Bank of Russia, from the point of view of assessing risks, the indicators of observed inflation are less important than future expectations, and the Infom poll is more likely a signal for stability or a slight decrease in the key rate at the next meeting. At the same time, there is no reason to consider the current growth in expectations as strong – now they are lower than a year ago.

Dmitry Butrin